The Pricing of Home Mortgage Loans to Minority Borrowers: How Much of the APR Differential Can We Explain?

The public releases of the 2004 and 2005 HMDA data have engendered a lively debate over the pricing of mortgage credit and its implications regarding the treatment of minority mortgage borrowers. This research uses aggregated proprietary data provided by lenders and an endogenous switching regressio...

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Bibliographic Details
Published in:The Journal of real estate research 2007-10, Vol.29 (4), p.399-440
Main Author: Courchane, Marsha J.
Format: Article
Language:English
Subjects:
Access to credit
African Americans
Approximation
Asset pricing
Ethnic minorities
Financial engineering
Hispanic Americans
Hispanics
Home Mortgage Disclosure Act 1990-US
Housing market
Housing prices
Lenders
Loan rates
Loans
Mortgage loans
Mortgage markets
Mortgages
Prepayment penalty
Prices
Real estate market
Regression analysis
Regulatory agencies
Studies
Subprime lending
Subprime loans
Subprime mortgages
Term loans
U.S.A
Underwriting
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Summary:The public releases of the 2004 and 2005 HMDA data have engendered a lively debate over the pricing of mortgage credit and its implications regarding the treatment of minority mortgage borrowers. This research uses aggregated proprietary data provided by lenders and an endogenous switching regression model to estimate the probability of taking out a subprime mortgage, and annual percentage rate (APR) conditional on getting either a subprime or prime mortgage. The findings reveal that up to 90% of the African American APR gap, and 85% of the Hispanic APR gap, is attributable to observable differences in underwriting, costing, and market factors that appropriately explain mortgage pricing differentials. Although any potential discrimination is problematic and should be addressed, the analysis suggests that little of the aggregate differences in APRs paid by minority and non-minority borrowers are appropriately attributed to differential treatment.
ISSN:0896-5803
2691-1175
DOI:10.1080/10835547.2007.12091208